Consumer Goods Makers Assuage Distributors’ Angst Over Trade Shifts

Dabur India Ltd. and Hindustan Unilever Ltd. are separating product portfolios sold through different channels of trade, multiple distributors BloombergQuint spoke with said. Marico Ltd. has stopped selling some of its smaller stock-keeping units at supermarkets and hypermarkets, besides introducing uniform discounts for modern trade or stores and distributors on its edible oil brand Saffola, the distributors said.

That came after companies, over the past few years, started bypassing distributors—the conduit between manufacturers and millions of small stores—and directly supplied to supermarket chains. Urban Indians now increasingly buy online, hurting demand from smaller retailers. Mom-and-pop stores in metros also started moving to cash-and-carry outlets. A liquidity crisis and the worst economic slowdown in nearly six years that discouraged discretionary spending culminated into a full-blown crisis for the nation’s four lakh-odd distributors that contribute nearly 90 percent of the industry’s revenue.

The All India Consumer Goods Distributors Association, in November, retaliated by not stocking products of six companies in Gujarat and threatened to write to Prime Minister Narendra Modi. At least 5,000 large distributors were pushed out of business in recent months.

“We appreciate that companies have started to take action and bring in uniform pricing across different channels of distribution,” Dhairyashil Patil, president of All India Consumer Products Distributors Federation. “Pricing differentiation had affected the trade severely as retailers with whom we had built a relationship over years were also impacted. That impacted our business as well as business for companies.”

BloombergQuint visited stores and found low or no discounts on smaller packs sold through modern trade—which were largely confined to larger stock-keeping units that are predominantly stocked by hypermarkets and supermarkets as companies provide modern trade with higher margins.

For instance, the Future Retail Ltd.-owned Big Bazaar stores offered little or no discounts on small packs of consumer goods. On larger packs, however, they ranged between 9 percent and 23 percent for different products.

For example, Reliance Smart offers no discounts on smaller packs even as a buyer can get a 10-18 percent discount or “buy two, get one free” on larger packs. To be sure, the retailer offers a 7 percent discount across categories from its own pocket.

BloombergQuint also visited many mom-and-pop stores and found that there were no discounts on offer across categories.

Companies like Nestle India Ltd., which have a differentiated strategy for stock-keeping units for different channels across the world, may implement it in India as well, a distributor who supplies to multiple channels told BloombergQuint on the condition of anonymity.

Nestle India had said in December it would bring price parity between different channels of trade. Hindustan Unilever—which derives nearly 15-17 percent of its revenue from modern trade—refused to comment to emailed queries citing silent period ahead of its earnings.

Dabur may not sell smaller packs that usually witness high demand in general trade to hypermarkets and supermarkets, a distributor told BloombergQuint on the condition of anonymity. HUL, the distributor said, may introduce pricing parity between traditional and modern trade channels for stock-keeping units that sell more through mom-and-pop stores.

Marico, which generates around 15 percent of its revenue from modern trade, told investors in its quarterly update that the growth of modern trade and commerce channels slowed partly due to specific price management measures undertaken to counter inter-channel conflict.

ITC Ltd., Britannia Industries Ltd., Dabur and Mondelez International Inc. have yet to respond to BloombergQuint’s emailed query on changes in pricing and product differentiation across different channels of distribution.

Dhanraj Bhagat, partner at Grant Thornton, said that while modern trade will eventually grow to become a sizeable channel of distribution for FMCG products, it’s still a far way off. “A major chunk of FMCG product sales is still carried out through distributors and the companies must maintain pricing parity.”